Remember…
None of this will affect your 2017 taxes. You won’t need to worry about these changes when you start filing your 2017 tax returns in about a month. The new laws will first be applied to 2018 taxes.
For year 2018:
- There are still seven tax brackets for individuals, but the tax rates have changed. Americans will continue to be placed in one of seven tax brackets based on their income. But the rates for some of these brackets have been lowered. The new rates are: 10%, 12%, 22%, 24%, 32%, 35% and 37%.
- You can still deduct student loan interest. The deduction for student loan interest, which is up to $2,500 per year, is safe.
- Property Tax will be limited.The state and local tax deduction, or SALT, remains in place for those who itemize their taxes – but now there’s a $10,000 cap.
- The personal exemption is gone. Previously, you could claim a $4,050 personal exemption for yourself, your spouse and each of your dependents, which lowered your taxable income.
- The standard deduction has been doubled. For Married Filing Jointly status (MFJ) will be $24,000, for Head of Household status (HOH) it will be $18,000, for Single status (S) it will be $12,000
- The child tax credit has doubled to $2,000 for children under 17. It’s also now available, in full, to more people. The entire credit can be claimed by single parents who make up to $200,000, and married couples who make up to $400,000.
- There’s a new tax credit for non-child dependents, like elderly parents. Taxpayers may now claim a $500 temporary credit for non-child dependents.This can apply to a number of people adults support, such as children over age 17, elderly parents or adult children with a disability.
- And the mortgage interest deduction has been lowered. Current homeowners are in the clear. But from now on, anyone buying a new home will only be able to deduct the first $750,000 of their mortgage debt. That’s down from $1 million. This is likely to affect people looking for homes in more expensive coastal regions.
- You can still deduct medical expenses. The deduction for medical expenses wasn’t cut. In fact, it’s been expanded for two years. In that time, filers can deduct medical expenses that add up to more than 7.5% of adjusted gross income. In the past, the threshold for most Americans was 10% of adjusted gross income.
- If you’re a teacher, you can still deduct classroom supplies. The deduction for teachers who spend their own money on school supplies was left alone. Educators can continue to deduct up to $250 to offset what they spend on classroom materials.
- Home sellers who turn a profit keep their tax break. Homeowners who sell their house for a gain will still be able to exclude up to $500,000 (or $250,000 for single filers) from capital gains, so long as they’re selling their primary home and have lived there for two of the past five years.
- Tuition waivers for grad students remain tax-free. Graduate students still won’t have to pay income taxes on the tuition waiver they get from their schools. Such waivers are typically awarded to teaching and research assistants.
- The miscellaneous expenses will be taken away, including Unreimbursed Employee Business Expenses.
- Say goodbye to the tax deduction for alimony payments. Alimony payments, which are codified in divorce agreements and go to the ex-spouse who earns less money, are no longer deductible for the person who writes the checks. This provision will apply to couples who sign divorce or separation paperwork after December 31, 2018.
- The deduction for moving expenses is gone. There may be some exceptions for members of the military. But most people will no longer be able to deduct the cost of their U-Haul when they move for work.
- Tax preparation deduction is gone. Before tax reform passed, people could deduct the cost of having their taxes prepared by a professional, or the money they spent on tax prep software. That break has been eliminated.
- And the individual mandate on health insurance has been scrapped. Republicans failed to repeal Obamacare earlier this year, but they managed to get rid of one of the health law’s key provisions with tax reform. The elimination of the individual mandate, which penalizes people who do not have health care, goes into effect in 2019.
Everyone will be impacted differently. Overall you’ll see many people with a larger paycheck starting around February or March 2018 (new charts of withholding to be released in January) and a tax cut. California, New York, New Jersey and other high Real Estate value states will have some unhappy people as Property Taxes will be capped at $10,000.
Call or email me if you have any questions.
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